Abbot Benefits Group

The healthcare reform legislation passed in March has a little-known provision that may increase costs for the self-employed, small businesses, charities, and government agencies.  The provision requires them to issue 1099s to every company from which they have purchased more than $600 in goods.

This requirement may place a significant new burden on the accounting practices of these businesses.  For example, they may be forced to hire additional accounting services or purchase additional software to be able to comply with the law.

The Patient Protection and Affordable Care Act provides tax credits to eligible small employers who contribute to their employees’ health insurance premiums.  To be eligible, the employer must:

1. Cover at least 50% of the employee only cost of coverage
2. Have less than 25 full-time equivalent employees
3. Pay average annual wages below $50,000.

If an employer pays average wages below $25,000 and has 10 or fewer employees, they are eligible for the maximum tax credit of 35% of their premium costs.  The credit gradually phases out for businesses with average wages between $25,000 and $50,000 and for businesses with 10 to 25 full-time equivalent employees.

The IRS recently came out with new guidance for determining the amount of this tax credit.  The credit will now be based on a percentage of the lessor of the employer’s contributions and the amount the employer would have contributed if the employees’ premiums were equal to the average premium in the state.

For Texas, the Secretary of Health and Human Services (HHS) determined the average employee-only premium to be $5,140 and the average family premium to be $11,972.  Because some parts of the state have meaningfully higher premiums than others, HHS may determine average premium rates for specific areas of the state.

The National Association of Health Underwriters (NAHU) has prepared a brief with more detailed information.